8-K/A 1 v015041_8ka.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K/A (AMENDMENT NO. 1) CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 Date of Report (Date of earliest reported): January 11, 2005 VERTEX INTERACTIVE, INC. (Exact name of registrant as specified in charter) New Jersey 0-15066 22-2050350 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 3619 Kennedy Road, South Plainfield, New Jersey 07080 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (908) 756-2000 Copies to: Gregory Sichenzia, Esq. Sichenzia Ross Friedman Ference LLP 1065 Avenue of the Americas New York, New York 10018 Phone: (212) 930-9700 Fax: (212) 930-9725 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [_] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [_] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [_] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT. SECURITIES PURCHASE AGREEMENT On January 11, 2005, we entered into a Securities Purchase Agreement with AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners II, LLC for the sale of (i) $1,850,000 in secured convertible notes and (ii) warrants to purchase 1,850,000 shares of our common stock. The secured convertible notes bear interest at 10%, mature two years from the date of issuance, and are convertible into our common stock, at the investors' option, at the lower of: o $0.09; or o 40% of the average of the three lowest intraday trading prices for the common stock on the Over-The-Counter Bulletin Board for the 20 trading days before but not including the conversion date. The full principal amount of the secured convertible notes, plus a default interest rate of 15%, is due upon a default under the terms of secured convertible notes. In addition, we granted the investors a security interest in substantially all of our assets, including the assets of our wholly owned subsidiaries, and intellectual property. We are required to file a registration statement with the Securities and Exchange Commission within 30 days of closing, which will include the common stock underlying the secured convertible notes and the warrants. If the registration statement is not declared effective within 60 days from the date of closing, we are required to pay liquidated damages to the investors. In the event that we breach any representation or warranty in the Securities Purchase Agreement, we are required to pay liquidated damages in shares of our common stock or cash, at the election of the investors, in an amount equal to three percent of the outstanding principal amount of the secured convertible notes per month plus accrued and unpaid interest. The warrants are exercisable until five years from the date of issuance at a purchase price of $0.09 per share. The investors may exercise the warrants on a cashless basis if the shares of common stock underlying the warrants are not then registered pursuant to an effective registration statement. In the event the investors exercise the warrants on a cashless basis, we will not receive any proceeds. In addition, the exercise price of the warrants will be adjusted in the event we issue common stock at a price below market, with the exception of any securities issued as of the date of the warrants or issued in connection with the secured convertible notes issued pursuant to the Securities Purchase Agreement. Upon an issuance of shares of common stock below the market price, the exercise price of the warrants will be reduced accordingly. The market price is determined by averaging the last reported sale prices for our shares of common stock for the five trading days immediately preceding such issuance as set forth on our principal trading market. The exercise price shall be determined by multiplying the exercise price in effect immediately prior to the dilutive issuance by a fraction. The numerator of the fraction is equal to the sum of the number of shares outstanding immediately prior to the offering plus the quotient of the amount of consideration received by us in connection with the issuance divided by the market price in effect immediately prior to the issuance. The denominator of such issuance shall be equal to the number of shares outstanding after the dilutive issuance. The conversion price of the secured convertible notes and the exercise price of the warrants may be adjusted in certain circumstances such as if we pay a stock dividend, subdivide or combine outstanding shares of common stock into a greater or lesser number of shares, or take such other actions as would otherwise result in dilution of the investors' position. The investors have agreed to restrict their ability to convert their secured convertible notes or exercise their warrants and receive shares of our common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.9% of the then issued and outstanding shares of our common stock. Under a Guaranty and Pledge Agreement, Mr. Nicholas Toms, our Chief Executive Officer agreed (i) to unconditionally guarantee the timely and full satisfaction of all obligations, whether matured or unmatured, now or hereafter existing or created and becoming due and payable to AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners II, LLC, their successors, endorsees, transferees or assigns under the Securities Purchase Agreement and other transaction documents to the extent of 2,006,418 shares of our common stock owned by Mr. Toms, and (ii) to grant to AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners II, LLC, their successors, endorsees, transferees or assigns a security interest in the 2,006,418 shares owned by Mr. Toms as collateral security for such obligations. 2 STOCK PURCHASE AGREEMENT On January 12, 2005, we entered into a Stock Purchase Agreement with Peter B. Ayling, Elizabeth M. Ayling, Brad L. Leonard, Michael C. Moore, Cape Systems and Consulting Services Ltd. and Cape Systems, Inc. (together with Cape Systems and Consulting Services Ltd., "Cape Systems") pursuant to which we purchased all of the issued and outstanding shares of common stock of Cape Systems and Consulting Services Ltd. from Peter B. Ayling and Elizabeth M. Ayling and Cape Systems, Inc. from Brad L. Leonard and Michael C. Moore for an aggregate purchase price of $2,000,000. Pursuant to the Stock Purchase Agreement, the parties executed an Escrow Agreement pursuant to which $200,000 of the purchase price was placed in escrow for a period of 15 months as a fund for indemnity claims arising out of the transaction. Cape Systems is a provider of palletizing and packaging configuration, and truck/container loading software that improves pallet and truck utilization, and reduces packaging, storage and transportation costs. Its programs optimize pallet patterns, create new case sizes and product packaging, create efficient bundles of corrugated flat packs, build display pallet loads and test the strength of corrugated board. Its customer base, numbering approximately 3,700, includes, among others, such companies as Wal-Mart, Sam's Club, Kraft, Nestle, Procter & Gamble, Smurfit-Stone and Coca-Cola. In connection with the acquisition, we entered into an Employment Agreement with Brad L. Leonard to serve as Vice President General Manager - Sales, Cape Group. Pursuant to the Employment Agreement, Mr. Leonard will receive an annual salary of $110,000, 200,000 stock options were granted upon execution and Mr. Leonard will receive 160,000 stock options each year employed, commencing January 12, 2006, for a period of five years. The Employment Agreement can be terminated by the Company upon 30 days written notice to Mr. Leonard and by Mr. Leonard upon written notice to the Company for just cause, as defined therein. In connection with the acquisition, we entered into a Consulting Agreement with IMC Development Group, which is owned by Peter and Elizabeth Ayling. Pursuant to the Consulting Agreement, we retained IMC Development Group for a period of 18 months, which is then automatically renewable on a month-to-month basis. IMC Development Group will be paid 7,500 pounds per month (approximately $14,021 per month based on current exchange rates), 300,000 stock options were granted upon execution and IMC Development Group will receive 500,000 stock options each year while the Consulting Agreement is in place, commencing January 12, 2006, for a period of three years. Additionally, Mr. Ayling will serve as our Vice President of Marketing. ITEM 2.01 ACQUISITION OF ASSETS. See Item 1.01 above. ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION. See Item 1.01 above. ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES. See Item 1.01 above. 3 ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. 1. Audited Financial Statements of Cape Systems and Consulting Services Ltd. for the years ended December 31, 2003 and 2002 (filed herewith). 2. Audited Financial Statements of Cape Systems, Inc. (a subsidiary of Cape Systems and Consulting Services Ltd.) for the years ended December 31, 2003 and 2002 (filed herewith). (B) PRO FORMA FINANCIAL INFORMATION. Pro forma Financial Information (filed herewith) Unaudited pro forma condensed combined financial statements for Vertex Interactive and Cape Systems. (C) EXHIBITS. 4 EXHIBIT NUMBER DESCRIPTION -------------------------------------------------------------------------------- 4.1 * Securities Purchase Agreement, dated January 11, 2005, by and among Vertex Interactive, Inc., AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners II, LLC. 4.2 * Callable Secured Convertible Note issued to AJW Offshore, Ltd., dated January 11, 2005. 4.3 * Callable Secured Convertible Note issued to AJW Qualified Partners, LLC, dated January 11, 2005. 4.4 * Callable Secured Convertible Note issued to AJW Partners, LLC, dated January 11, 2005. 4.5 * Callable Secured Convertible Note issued to New Millennium Capital Partners II, LLC, dated January 11, 2005. 4.6 * Stock Purchase Warrant issued to AJW Offshore, Ltd., dated January 11, 2005. 4.7 * Stock Purchase Warrant issued to AJW Qualified Partners, LLC, dated January 11, 2005. 4.8 * Stock Purchase Warrant issued to AJW Partners, LLC, dated January 11, 2005. 4.9 * Stock Purchase Warrant issued to New Millennium Capital Partners II, LLC, dated January 11, 2005. 4.10 * Registration Rights Agreement, dated as of January 11, 2005, by and among Vertex Interactive, Inc., AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners II, LLC. 4.11 * Security Agreement, dated as of January 11, 2005, by and among Vertex Interactive, Inc., Data Control Systems, Inc., Renaissance Software, Inc., Xequte Solutions PLC, Xequte Solutions, Inc., Vertex Interactive (UK), Ltd., Vertex Interactive (Ireland) Ltd., Vertex Interactive (Mfg) Ltd., Trend Investments Ltd., ICS France Indentcode-System S.A.., Vertex Support And Maintenance Italia SRL, Vertex Interactive Italia SRL, Euronet Consulting SRL, AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners II, LLC. 4.12 * Intellectual Property Security Agreement, dated January 11, 2005, by and among Vertex Interactive, Inc., Data Control Systems, Inc., Renaissance Software, Inc., Xequte Solutions PLC, Xequte Solutions, Inc., Vertex Interactive (UK), Ltd., Vertex Interactive (Ireland) Ltd., Vertex Interactive (Mfg) Ltd., Trend Investments Ltd., ICS France Indentcode-System S.A.., Vertex Support And Maintenance Italia SRL, Vertex Interactive Italia SRL, Euronet Consulting SRL, AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners II, LLC. 4.13 * Guaranty and Pledge Agreement, dated January 11, 2005, by and among Vertex Interactive, Inc., Nicholas Toms, AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners II, LLC. 10.1 * Stock Purchase Agreement, dated January 12, 2005, by and among Vertex Interactive, Inc., Peter B. Ayling, Elizabeth M. Ayling, Brad L. Leonard, Michael C. Moore, Cape Systems and Consulting Services Ltd. and Cape Systems, Inc. 10.2 * Escrow Agreement, dated as of January 12, 2005, by and among Vertex Interactive, Inc., Peter B. Ayling, Elizabeth M. Ayling, Brad L. Leonard, Michael C. Moore and Law Office of Jeffrey D. Marks P.C. 10.3 * Employment Agreement, dated as of January 12, 2005, by and between Vertex Interactive, Inc. and Brad L. Leonard 10.4 * Consulting Agreement, dated as of January 12, 2005, by and between Vertex Interactive, Inc. andIMC Development Group * Previously filed. 5 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. VERTEX INTERACTIVE, INC. Date: March 28, 2005 /s/ NICHOLAS R. TOMS -------------------------- Nicholas R. Toms, Chief Executive Officer 6 CAPE SYSTEMS AND CONSULTING SERVICES LIMITED PROFIT AND LOSS ACCOUNT 01.01.02 - 31.12.02 Note 2002 2001 ----------- ----------- ----------- (pound) (pound) ----------- ----------- Turnover (see footnote) 498037 391692 Cost of sales 336921 251098 ----------- ----------- Gross Profit 161116 140594 Net Operating Expenses 157415 130316 ----------- ----------- 3701 10278 Interest Payable and Similar Payments 3305 4869 ----------- ----------- Profit on Ordinary Activities 1 396 5409 Taxation 3 (506) 390 ----------- ----------- Profit after taxation 902 5019 Dividends 0 0 ----------- ----------- Retained Profit for the year 9 902 5019 ----------- ----------- Footnotes 1. Turnover reflects the absorption of operations from Cape Systems Limited, a subsidiary made dormant from 31.12.91. These activities are streamed with that of the parent company and continue to be conducted. 2. The company had no recognised gains or losses other than those included in profit and loss. No separate primary statement is required. 3. The profit for the year is the only movement on reserves. 7 CAPE SYSTEMS AND CONSULTING SERVICES LIMITED BALANCE SHEET 31.12.02 Note 2002 2001 ----------- ----------- ----------- (pound) (pound) ----------- ----------- Fixed Assets Tangible Fixed Assets 4 8969 17934 Investment in Subsidiaries 5 40500 40500 ----------- ----------- 49469 58434 ----------- ----------- Current Assets Stocks 4500 3850 Debtors 6 71300 71670 Bank Balances and Cash 59403 42397 ----------- ----------- 135203 117917 Creditors due within one year 7 46422 39003 ----------- ----------- Net Current Assets 88781 78914 ----------- ----------- Total Assets less Current Liabilities 138250 137348 ----------- ----------- Net assets 138250 137348 =========== =========== Capital and Reserves Called up Share Capital 8 25500 25500 Reserves 9 112750 111848 ----------- ----------- 138250 137348 =========== =========== The accounts are prepared in accordance with the special provisions of Part VII of the CA1985 relating to small companies. The accounts shown on pages 5 to 9 were approved by the Board of Directors on 06.11.03 and were signed on its behalf by 8 PB Ayling Director CAPE SYSTEMS AND CONSULTING SERVICES LIMITED EXPLANATORY NOTES TO THE ACCOUNTS - 01.01.02 - 31.12.02

NOTE 4: Tangible Fixed Assets Office Computer Euipment Equipment Software Total -------- --------- --------- --------- Cost 01.01.02 16515 31100 143251 190866 Additions 425 831 0 1256 Disposals 0 ----- ----- ------ ------ 31.12.02 16940 31931 143251 192122 ----- ----- ------ ------ Depreciation 01.01.02 15865 26316 130751 172932 Charges 325 2946 6950 10221 Disposals 0 ----- ----- ------ ------ 31.12.02 16190 29262 137701 183153 ----- ----- ------ ------ Net Values 31.12.02 750 2669 5550 8969 ===== ===== ====== ====== 31.12.01 650 4784 12500 17934 ===== ===== ====== ====== 9 CAPE SYSTEMS AND CONSULTING SERVICES LIMITED EXPLANATORY NOTES TO THE ACCOUNTS - 01.01.02 - 31.12.02 2002 2001 ---- ---- (pound) (pound) ------- ------- NOTE 5: Investment in Subsidiaries and Associates at cost Cape Systems Limited 100 100 Cape Systems Incorp. (Formerly Techelm) 40400 40400 ----- ----- 40500 40500 ----- ----- NOTE 6: Debtors Trade Debtors 66752 66025 Other debtors and prepayments 4548 5645 ----- ----- 71300 71670 ----- ----- NOTE 7: Creditors - due within one year Trade Creditors 8647 10891 Other creditors and accruals 16141 6540 Bank Loan 3977 8856 Corporation Tax - - Service and upgrade in advance 17657 12716 ----- ----- 46422 39003 ----- ----- NOTE 8: Called up Share Capital Authorised 50000 ordinary (pound)1 shares Called up and fully paid (pound)1 shares 25500 25500 ----- ----- 10 NOTE 9: Reserves Capital Redemption Profit & Reserve Loss Total ---------- -------- ----- Balance 01.01.02 24500 87348 111848 Retained profit for the year - 902 902 ----- ----- ------ 24500 88250 112750 ----- ----- ------ CAPE SYSTEMS AND CONSULTING SERVICES LIMITED The following pages are prepared for the directors use only. CAPE SYSTEMS AND CONSULTING SERVICES LIMITED DETAILED PROFIT AND LOSS ACCOUNT 01.01.02 - 31.12.02 2002 2001 ---- ---- (pound) (pound) ------- ------- Turnover 498037 391692 ------ ------ Cost of Sales Consulting and System Design 251581 172437 Salaries 82971 77453 Computer Consumables 2369 1208 ------ ------ 336921 251098 ------ ------ Gross Profit 161116 140594 ------ ------ Operating Costs Freight and Packaging 17647 34920 Office Rent and Services 26594 22448 Euro and International Travel 24254 18923 Marketing and Promotions 26144 14322 Office Costs 22709 21420 Equipment Hire/Lease 2567 4040 Equipment Maintenance and General 4355 3559 Accounts and Legal 22924 7772 ------ ------ 147194 127404 ------ ------ Operating Profit 13922 13190 ------ ------ Other Income (132) (126) Bank Interest and Charges 4122 3934 (Profit) / Loss on Exchange (685) 839 Bad Debts 222 ------ ------ 3305 4869 ------ ------ Depreciation and Loss on Disposal of Fixed Assets 10221 2912 ------ ------ Profit for the Year before Taxation 396 5409 ------ ------ 11 CAPE SYSTEMS AND CONSULTING SERVICES LIMITED Company No. 01770912 Registered Office Suite 9.03 The Perfume Factory 140 Wales Farm Road London W3 6XL REPORTS AND ACCOUNTS 01.01.02 - 31.12.02 12 CAPE SYSTEMS AND CONSULTING SERVICES LIMITED DIRECTORS REPORT Activities The principal activity of the company is to provide consulting services in evaluating computer assisted packaging (Cape Systems). The Cape System is designed to explore quicker ways of improving package design and space utilisation through modular programmes. Users include leading companies throughout the world. Directors - and Directors Interests 01.01.02 - 31.12.02 PB Ayling 13000 Shares EM Ayling 12500 Shares VK Ayling - The total directors' interests remained the same. The holdings were split in October 1999 by transfer between PBA and EMA. Status of Company Advantage has been taken of the special provisions of Part VII CA1985 relating to small companies. PB Ayling Director 06.11.03 13 CAPE SYSTEMS AND CONSULTING SERVICES LIMITED Statement of directors responsibilities Company law requires the directors to prepare financial statements which give a true and fair view of the state of affairs of the company and of the profit of the company for that period. In preparing those financial statements the directors are required to : (i) apply accounting policies consistently, (ii) make judgements and estimates that are reasonable and prudent, (iii) prepare the accounts on a going concern basis unless this is a wrong assumption. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and comply with Companies Act 1985. The directors have a general responsibility for safeguarding the assets of the company and for taking reasonable steps for the prevention and detection of fraud and other irregularities. This statement should be read in conjunction with the auditors statement of their responsibilities in order to underline and distinguish the respective responsibilities of directors and auditors in relation to the accounts. In approving the accounts on page 7 the directors acknowledge these responsibilities. 14 CAPE SYSTEMS AND CONSULTING SERVICES LIMITED INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF CAPE SYSTEMS & CONSULTING SERVICES LIMITED We have audited the accounts on pages 5 to 9 which have been prepared in accordance with the Financial Reporting Standard for smaller entities under the accounting policies set out on page 5. Respective responsibilities of directors and auditors. As described on page 3 the company's directors are responsible for the preparation of the financial statements. It is our responsibility to form an independent opinion, based on our audit, on those accounts and to report our opinion to you. Basis of opinion We conducted our audit in accordance with auditing standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in preparation of the financial statements, and of whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed. We planned and performed the audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements give a true and fair view of the state of the company's affairs as at 31 December 2002 and of the profit for the year then ended and have been properly prepared in accordance with the provisions of the Companies Act 1985. /s/ LESLIE, WARD & DREW ----------------------- Leslie, Ward and Drew Chartered Accountants Registered Auditors Bath 06.11.03 15 CAPE SYSTEMS AND CONSULTING SERVICES LIMITED STATEMENT OF ACCOUNTING POLICIES Basis of Accounting The accounts are prepared in accordance with the provisions of the Companies Act 1985 applicable to small companies and the generally accepted accounting standards on a basis of historical cost. Tangible Fixed Assets Tangible fixed assets are recorded at cost. Depreciation is calculated to write off the cost over the period of the life of the asset. Turnover Represents the invoiced value of software sold exclusive of VAT. System Users Support Package Service and upgrade fees relating to commitments beyond the year end are treated as prepaid income in order to match the costs to be incurred in the period of that commitment. Foreign Currencies Assets and liabilities are translated at the rate operative at the balance sheet date. Transactions are converted at the rate ruling at the time of the transaction. Profits and losses are written off to the profit and loss account. Leases - Equipment Operating lease rentals are written off to profit and loss. Instalments under finance leases are split between capital and interest elements. The capital value of the obligation is treated as a fixed asset. Consolidation The company and its subsidiaries are a small group. The company takes advantage of the exemption provided by section 248 of the CA 1985 not to prepare group accounts. 16 CAPE SYSTEMS AND CONSULTING SERVICES LIMITED PROFIT AND LOSS ACCOUNT 01.01.03 - 31.12.03 Note 2003 2002 ----------- ----------- ----------- (pound) (pound) ----------- ----------- Turnover (see footnote) 450370 498037 Cost of sales 281261 336921 ----------- ----------- Gross Profit 169109 161116 Net Operating Expenses 142916 157415 ----------- ----------- 26193 3701 Interest Payable and Similar Payments 3651 3305 ----------- ----------- Profit on Ordinary Activities 1 22542 396 Taxation 3 1811 (506) ----------- ----------- Profit after taxation 20731 902 Dividends 0 0 ----------- ----------- Retained Profit for the year 9 20731 902 ----------- ----------- Footnotes 1. Turnover reflects the absorption of operations from Cape Systems Limited, a subsidiary made dormant from 31.12.91. These activities are streamed with that of the parent company and continue to be conducted. 2. The company had no recognised gains or losses other than those included in profit and loss. No separate primary statement is required. 3. The profit for the year is the only movement on reserves. 17 CAPE SYSTEMS AND CONSULTING SERVICES LIMITED BALANCE SHEET 31.12.03

The accounts are prepared in accordance with the special provisions of Part VII of the CA1985 relating to small companies. The accounts shown on pages 5 to 9 were approved by the Board of Directors on 29.07.04 and were signed on its behalf by PB Ayling Director 18 CAPE SYSTEMS AND CONSULTING SERVICES LIMITED EXPLANATORY NOTES TO THE ACCOUNTS - 01.01.03 - 31.12.03

NOTE 4: Tangible Fixed Assets Office Computer Euipment Equipment Software Total -------- --------- --------- --------- Cost 01.01.03 16940 31931 143251 192122 Leased Equipment 6266 0 0 6266 Additions 12973 791 13764 Disposals (16516) (30267) 0 (46783) ------- ------- ------- ------- 31.12.03 19663 2455 143251 165369 ------- ------- ------- ------- Depreciation 01.01.03 16190 29262 137701 183153 Charges 4389 2090 3770 10249 Disposals (16516) (30267) 0 (46783) ------- ------- ------- ------- 31.12.03 4063 1085 141471 146619 ------- ------- ------- ------- Net Values 31.12.03 15600 1370 1780 18750 ======= ======= ======= ======= 31.12.02 750 2669 5550 8969 ======= ======= ======= ======= 19 CAPE SYSTEMS AND CONSULTING SERVICES LIMITED EXPLANATORY NOTES TO THE ACCOUNTS - 01.01.03 - 31.12.03 2003 2002 ---- ---- (pound) (pound) ------- ------- NOTE 5: Investment in Subsidiaries and Associates at cost Cape Systems Limited 100 100 Cape Systems Incorp. (Formerly Techelm) 40400 40400 ----------- ----------- 40500 40500 ----------- ----------- NOTE 6: Debtors Trade Debtors 90245 66752 Other debtors and prepayments 20069 4548 ----------- ----------- 110314 71300 ----------- ----------- NOTE 7: Creditors - due within one year Trade Creditors 15684 8647 Other creditors and accruals 18048 16141 Bank Loan 6013 3977 Corporation Tax 1811 -- Lease Creditor 4917 -- Service and upgrade in advance 18554 17657 ----------- ----------- 65027 46422 ----------- ----------- NOTE 8: Called up Share Capital Authorised 50000 ordinary (pound)1 shares Called up and fully paid (pound)1 shares 25500 25500 ----------- ----------- NOTE 9: Reserves Capital Redemption Profit & Reserve Loss Total ----------- ----------- ----------- Balance 01.01.03 24500 88250 112750 Retained profit for the year -- 20731 20731 ----------- ----------- ----------- 24500 108981 133481 ----------- ----------- ----------- 20 CAPE SYSTEMS AND CONSULTING SERVICES LIMITED The following pages are prepared for the directors use only. CAPE SYSTEMS AND CONSULTING SERVICES LIMITED DETAILED PROFIT AND LOSS ACCOUNT 01.01.03 - 31.12.03 2003 2002 ----------- ----------- (pound) (pound) ----------- ----------- Turnover 450370 498037 ----------- ----------- Cost of Sales Consulting and System Design 195640 251581 Salaries 82678 82971 Computer Consumables 2943 2369 ----------- ----------- 281261 336921 ----------- ----------- Gross Profit 169109 161116 ----------- ----------- Operating Costs Freight and Packaging 24882 17647 Office Rent and Services 27498 26594 Euro and International Travel 20232 24254 Marketing and Promotions 22982 26144 Office Costs 11758 22709 Equipment Hire/Lease 2185 2567 Equipment Maintenance and General 6471 4355 Accounts and Legal 16659 22924 ----------- ----------- 132667 147194 ----------- ----------- Operating Profit 36442 13922 ----------- ----------- Other Income (412) (132) Bank Interest and Charges 3732 4122 Other Interest 1261 -- (Profit) / Loss on Exchange (1555) (685) Bad Debts 625 ----------- ----------- 3651 3305 ----------- ----------- Depreciation and Loss on Disposal of Fixed Assets 10249 10221 ----------- ----------- Profit for the Year before Taxation 22542 396 ----------- ----------- 21 CAPE SYSTEMS AND CONSULTING SERVICES LIMITED Company No. 01770912 Registered Office Suite 9.03 The Perfume Factory 140 Wales Farm Road London W3 6XL REPORTS AND ACCOUNTS 01.01.03 - 31.12.03 22 CAPE SYSTEMS AND CONSULTING SERVICES LIMITED DIRECTORS REPORT Activities The principal activity of the company is to provide consulting services in evaluating computer assisted packaging (Cape Systems). The Cape System is designed to explore quicker ways of improving package design and space utilisation through modular programmes. Users include leading companies throughout the world. Directors - and Directors Interests 01.01.03 - 31.12.03 PB Ayling 13000 Shares EM Ayling 12500 Shares VK Ayling - The total directors' interests remained the same. The holdings were split in October 1999 by transfer between PBA and EMA. Status of Company Advantage has been taken of the special provisions of Part VII CA1985 relating to small companies. PB Ayling Director 29.07.04 23 CAPE SYSTEMS AND CONSULTING SERVICES LIMITED Statement of directors responsibilities Company law requires the directors to prepare financial statements which give a true and fair view of the state of affairs of the company and of the profit of the company for that period. In preparing those financial statements the directors are required to: (i) apply accounting policies consistently, (ii) make judgements and estimates that are reasonable and prudent, (iii) prepare the accounts on a going concern basis unless this is a wrong assumption. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and comply with Companies Act 1985. The directors have a general responsibility for safeguarding the assets of the company and for taking reasonable steps for the prevention and detection of fraud and other irregularities. This statement should be read in conjunction with the auditors statement of their responsibilities in order to underline and distinguish the respective responsibilities of directors and auditors in relation to the accounts. In approving the accounts on page 7 the directors acknowledge these responsibilities. 24 CAPE SYSTEMS AND CONSULTING SERVICES LIMITED INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF CAPE SYSTEMS & CONSULTING SERVICES LIMITED We have audited the accounts on pages 5 to 9 which have been prepared in accordance with the Financial Reporting Standard for smaller entities under the accounting policies set out on page 5. Respective responsibilities of directors and auditors. As described on page 3 the company's directors are responsible for the preparation of the financial statements. It is our responsibility to form an independent opinion, based on our audit, on those accounts and to report our opinion to you. Basis of opinion We conducted our audit in accordance with auditing standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in preparation of the financial statements, and of whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed. We planned and performed the audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements give a true and fair view of the state of the company's affairs as at 31 December 2003 and of the profit for the year then ended and have been properly prepared in accordance with the provisions of the Companies Act 1985. /s/ LESLIE, WARD & DREW ----------------------- Leslie, Ward and Drew Chartered Accountants Registered Auditors Bath BA1 1LA 29.07.04 25 CAPE SYSTEMS AND CONSULTING SERVICES LIMITED STATEMENT OF ACCOUNTING POLICIES Basis of Accounting The accounts are prepared in accordance with the provisions of the Companies Act 1985 applicable to small companies and the generally accepted accounting standards on a basis of historical cost. Tangible Fixed Assets Tangible fixed assets are recorded at cost. Depreciation is calculated to write off the cost over the period of the life of the asset. Turnover Represents the invoiced value of software sold exclusive of VAT. System Users Support Package Service and upgrade fees relating to commitments beyond the year end are treated as prepaid income in order to match the costs to be incurred in the period of that commitment. Foreign Currencies Assets and liabilities are translated at the rate operative at the balance sheet date. Transactions are converted at the rate ruling at the time of the transaction. Profits and losses are written off to the profit and loss account. Leases - Equipment Operating lease rentals are written off to profit and loss. Instalments under finance leases are split between capital and interest elements. The capital value of the obligation is treated as a fixed asset. Consolidation The company and its subsidiaries are a small group. The company takes advantage of the exemption provided by section 248 of the CA 1985 not to prepare group accounts. 26 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors Cape Systems, Inc. We have audited the accompanying balance sheets of Cape Systems, Inc. (A Subsidiary of Cape Systems and Consulting Services Ltd) as of December 31, 2003 and 2002, and the related statements of operations and retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cape Systems, Inc. as of December 31, 2003 and 2002, and its results of operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ J.H. COHN LLP ----------------- Roseland, New Jersey March 24, 2005 27 CAPE SYSTEMS, INC. (A Subsidiary of Cape Systems and Consulting Services Ltd.) Cape Systems, Inc. Balance Sheets December 31, 2003 and 2002

See notes to the financial statements 28 CAPE SYSTEMS, INC. (A Subsidiary of Cape Systems and Consulting Services Ltd.) Cape Systems, Inc. Statements of Operations and Retained Earnings For the Years Ended December 31, 2003 and 2002 2003 2002 --------- --------- REVENUE $ 769,172 $ 756,777 COST OF SALES 134,233 172,409 --------- --------- GROSS PROFIT 634,939 584,368 OPERATING EXPENSES Selling, general and administrative 561,802 538,310 Depreciation 8,236 14,165 Research and development 24,132 38,912 --------- --------- Total operating expenses 594,170 591,387 --------- --------- Operating income (loss) 40,769 (7,019) OTHER EXPENSE Interest expense (2,565) (3,863) Other (3,937) 0 --------- --------- Other expense (6,502) (3,863) --------- --------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 34,267 (10,882) Provision (credit) for income taxes 2,413 (3,763) --------- --------- NET INCOME (LOSS) 31,854 (7,119) Retained earnings beginning of year 2,249 9,368 --------- --------- Retained earnings end of year $ 34,103 $ 2,249 ========= ========= See notes to financial statements 29 CAPE SYSTEMS, INC. (A Subsidiary of Cape Systems and Consulting Services Ltd.) Cape Systems, Inc. Statements of Cash Flows For the Years Ended December 31, 2003 and 2002 2003 2002 --------- --------- Cash Flows from Operating Activities Net Income (loss) $ 31,854 ($ 7,119) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 8,236 14,165 Bad debts 2,554 5,108 Change in operating assets and liabilities Accounts receivable 71,594 (39,550) Deferred taxes (1,800) (4,600) Prepaid expense and other current assets 15,585 (3,005) Accounts payable (9,100) 27,670 Accrued expenses and other liabilities 11,977 7,526 --------- --------- Net cash provided by operating activities 130,900 195 --------- --------- Cash flows from investing activities - additions to equipment, furniture and fixtures (1,996) (6,276) --------- --------- Cash flows from financing activities Proceeds from notes payable -- 20,000 Repayment of notes payable (10,734) (7,691) --------- --------- Net cash provided by (used in) financing activities (10,734) 12,309 Net increase in cash 118,170 6,228 Cash at beginning of year 34,830 28,602 --------- --------- Cash at end of year $ 153,000 $ 34,830 ========= ========= Supplemental Disclosures of Cash Flow Information Cash paid for: Income taxes $ 4,314 $ 837 Interest $ 2,565 $ 3,863 See notes to financial statements 30 CAPE SYSTEMS, INC. (A Subsidiary of Cape Systems and Consulting Services Ltd.) Notes to the Financial Statements Note 1: Organization and summary of significant accounting policies Organization: Cape Systems, Inc (the "Company") was incorporated in Texas on July 27, 1987. The Company is a 60% owned subsidiary of Cape Systems and Consulting Services Ltd. (the "Parent"). The Company is a provider of palletizing and packaging configuration, and truck and container loading software that improves pallet and truck utilization, and reduces packaging, storage and transportation costs. Its programs optimize pallet patterns, create new case sizes and product packaging, create efficient bundles of corrugated flat packs, build display pallet loads and test the strength of corrugated board. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Revenue Recognition: Software sales: Revenue related to software license sales is recorded at the time of shipment provided that (i) no significant vendor obligations remain outstanding at the time of sale; (ii) the collection of the related receivable is reasonably assured by management; and (iii) vendor specific objective evidence ("V.S.O.E.") of fair value exists for all significant elements, including post contract customer support ("PCS") in multiple element arrangements. Professional services: The Company provides consulting and other services on a per-diem billing basis and recognizes such revenues as the services are performed. Support and Service: The Company accounts for revenue related to service contracts and post contract customer support over the life of the arrangements, usually twelve months, pursuant to the service and/or licensing agreement between the customers and the Company. 31 CAPE SYSTEMS, INC. (A Subsidiary of Cape Systems and Consulting Services Ltd.) Notes to the Financial Statements Deferred Revenue: Deferred revenue represents the unearned portion of revenue related to PCS. Equipment, furniture and fixtures: Equipment, furniture and fixtures are stated at cost, less accumulated depreciation and amortization. Depreciation is computed on the straight-line basis over the estimated useful lives of individual assets or classes of assets. Improvements to leased properties or fixtures are amortized over the shorter of their estimated useful lives or the related lease terms. Concentration of Credit Risk: The Company's financial instruments that are exposed to concentration of credit risk consist primarily of cash and accounts receivable. The Company maintains its cash in bank accounts that, at times, have balances that exceed the federally insured limit of $100,000 (there was a balance of $7,000 in excess of the limit at December 31, 2003). The Company reduces its exposure to credit risk by maintaining its cash deposits with major financial institutions and monitoring their credit ratings. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base, their dispersion across different geographic areas, and generally short payment terms. There were no significant concentrations in 2003 and 2002. In addition, the Company closely monitors the extension of credit to its customers while maintaining allowances for potential credit losses. On a periodic basis, the Company evaluates its trade accounts receivable and will establish an allowance for doubtful accounts, based on a history of past write-offs and collections and current credit considerations if necessary. Income Taxes: The Company accounts for income taxes pursuant to the asset and liability method that requires deferred income tax assets and liabilities to be computed for temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax provision or credit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. 32 CAPE SYSTEMS, INC. (A Subsidiary of Cape Systems and Consulting Services Ltd.) Notes to the Financial Statements Advertising: The Company expenses the cost of advertising and promotions as incurred. Advertising cost charges to operations amounted to approximately $26,900 and $28,600 in 2003 and 2002 respectively. Research and development: Research and development expenditures are charged to expense as incurred. Note 2: Equipment, furniture and fixtures: Equipment, furniture and fixtures, consist of the following: Range of Estimated Useful Lives 2003 2002 ------------ ---- ---- Equipment, furniture and fixtures 3 - 10 years $42,777 $202,810 Computer equipment 3 - 5 years 7,677 54,837 --------- ---------- 50,454 257,647 Less: accumulated depreciation 38,400 239,353 --------- ---------- Totals $12,054 $18,294 ======= ======= Note 3: Line of credit borrowings: At December 31, 2003, the Company had no outstanding borrowings under its $25,000 line of credit. Any outstanding borrowings bear interest at 1.25% above the prime rate, are collateralized by all of the Company's assets and guaranteed by certain stockholders of the Company. The line of credit expires on December 31, 2005. Note 4: Long-term debt: Long-term debt consists of the following: 2003 2002 ---- ---- Unsecured note payable in monthly installments of $306, including interest at 7.5% through May 2009 $12,034 $16,999 Note payable in monthly installments of $523 including interest at 11.49%, through September 2004; collateralized 33 CAPE SYSTEMS, INC. (A Subsidiary of Cape Systems and Consulting Services Ltd.) Notes to the Financial Statements by all of the Company's assets: 4,072 9,841 ------- ------- 16,106 26,840 Less current portion 6,613 7,786 ------- ------- Long-term portion $ 9,493 $19,054 ------- ------- The principal payments due under the notes payable for each of the subsequent years after December 31, 2003 were as follows Year Ending December 31 Amount ----------- ------ 2004 $6,613 2005 2,738 2006 2,952 2007 3,180 2008 623 Note 5: Income Taxes Provision (credit) for income taxes consist of the following: 2003 2002 ------- ------- Current: Federal $ 4,213 $ 837 ------- ------- Total Current $ 4,213 $ 837 ------- ------- Deferred: Federal $(1,800) $(4,600) ------- ------- Total Deferred $(1,800) $(4,600) ------- ------- Totals $ 2,413 $(3,763) ======= ======= The provision for income taxes differs from the amount which would have been reported by applying the statutory rates. These differences are due primarily to certain nondeductible expenses. 34 CAPE SYSTEMS, INC. (A Subsidiary of Cape Systems and Consulting Services Ltd.) Notes to the Financial Statements At December 31, 2003 and 2002, the deferred tax asset relates to the allowance for doubtful accounts and deferred revenue. At December 31, 2003 and 2002, the deferred tax liability relates to depreciation. In assessing the realizability of the deferred tax asset, management considers whether it is more likely that some portion or all of the deferred tax asset will not be realized. The ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management has determined that the realization of the recorded deferred tax asset is reasonably assured; accordingly, no valuation allowance has been recorded. Note 6: Commitment: Leases: The Company has a lease for its office facility which expires in April 2006. The minimum annual lease payment under the operating lease is $35,556. Rent expense for 2003 and 2002 was approximately $44,000 and $36,000 respectively. Royalty payments: A royalty agreement was entered into in June 1998 as part of software license for its Truckfill Software Product. As part of the agreement, the Company is required to make a royalty payment of $450 for each Truckfill software license sold. During 2003, the Company incurred royalty expenses of approximately $19,350. Note 7: Related Party Transactions: The Company receives certain administrative and management services from the Parent. The Company paid $8,500 in 2003 and $33,000 in 2002 for such services performed. In addition, the Company paid approximately $24,000 during 2003 and 2002 to a corporation owned by an Officer of the Company for various consulting services. Accounts receivable at December 31, 2003 includes amount receivable from Parent for reimbursement of expenses of $3,890. 35 CAPE SYSTEMS, INC. (A Subsidiary of Cape Systems and Consulting Services Ltd.) Notes to the Financial Statements Note 8: Subsequent Events: On January 12, 2005, the Company and the stockholders of the Company entered into a Stock Purchase Agreement with Vertex Interactive, Inc ("Vertex") pursuant to which Vertex purchased all of the issued and outstanding shares of the Company. 36 INTRODUCTION TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS This Current Report on Form 8-K/A amends the Current Report on Form 8-K of Vertex Interactive, Inc. ("Vertex") dated January 11, 2005 and is being filed solely for the purposes of including financial statements of Cape Systems and Consulting Services, Ltd. and its subsidiary, Cape Systems, Inc. (together, "Cape"). Vertex filed the January 11, 2005, Current Report on Form 8-K with the Securities and Exchange Commission to report, among other items, information concerning the acquisition on January 11, 2005, of 100% of the capital stock of Cape for a purchase price of approximately $1.8 million excluding closing costs. The accompanying unaudited pro forma condensed combined statements of operations initially combine the historical consolidated statements of operations of the businesses of Vertex for the year ended September 30, 2004 and Cape that Vertex acquired on January 11, 2005 and reflect the acquisition as if those transactions had been consummated on October 1, 2003. The accompanying unaudited pro forma condensed combined balance sheet initially combines the historical consolidated balance sheet of Vertex as of December 31, 2004 with those of Cape as of December 31, 2003 and reflects the acquisition and certain financial transactions as if those transactions had been consummated on December 31, 2004. On January 11, 2005, Vertex entered into a Securities Purchase Agreement with AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners II, LLC for the sale of (i) $1,850,000 in secured convertible notes and (ii) warrants to purchase 1,850,000 shares of our common stock. The secured convertible notes bear interest at 10%, mature two years from the date of issuance, and are convertible into our common stock, at the investors' option, at the lower of: o $0.09; or o 40% of the average of the three lowest intraday trading prices for the common stock on the Over-The-Counter Bulletin Board for the 20 trading days before but not including the conversion date. You should read this information in conjunction with: o the accompanying notes to the unaudited pro forma condensed combined financial statements; o the separate audited and unaudited historical financial statements of Vertex included in its Annual Report on Form 10-KSB for the year ended September 30, 2004 and its Quarterly Report on Form 10-QSB for the quarterly period ended December 31, 2004, which were previously filed with the Securities and Exchange Commission; o the separate audited historical financial statements of Cape Systems and Consulting Services Ltd as of and for the years ended December 31, 2002 and 2003, which are included in this amended report on Form 8-K; and o the separate audited historical financial statements of Cape Systems, Inc. a subsidiary of Cape Systems and Consulting Services Ltd as of December 31, 2002 and 2003, which are included in this amended report on Form 8-K. We have presented the accompanying unaudited pro forma condensed combined financial statements for informational purposes only. The accompanying unaudited pro forma condensed combined financial statements are not necessarily indicative of what our financial position or results of operations actually would have been had we completed the acquisition on October 1, 2003. In addition, the unaudited pro forma condensed combined financial statements do not purport to project the future financial position or operating results of the combined companies. We prepared the accompanying unaudited pro forma condensed combined financial statements using the purchase method of accounting with Vertex treated as the accounting acquirer. Accordingly, Vertex's allocation of costs to acquire Cape will be based upon historical values as of the date of acquisition for the assets acquired and the liabilities assumed. 37 VERTEX INTERACTIVE, INC. AND SUBSIDIARIES PROFORMA CONDENSED COMBINED BALANCE SHEET DECEMBER 31, 2004

40 VERTEX INTERACTIVE, INC. AND SUBSIDIARIES PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2004

Note: C 3 months interest expense 41 VERTEX INTERACTIVE, INC. AND SUBSIDIARIES PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004

Notes: A Insurance premiums $15,000 and bank fees $200 B 12 month interest expense 42 NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (1) Description of the Transactions and Basis of Presentation: On January 11, 2005, Vertex entered into a Securities Purchase Agreement with AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners II, LLC for the sale of (i) $1,850,000 in secured convertible notes and (ii) warrants to purchase 1,850,000 shares of our common stock. The proceeds of the Securities Purchase Agreement were used primarily to acquire 100% of the capital stock of Cape for a purchase price of approximately $1.8 million excluding closing costs on January 11, 2005. The acquisition will be accounted for as a purchase by Vertex under accounting principles generally accepted in the United States of America. Under the purchase method of accounting, the assets and liabilities of Cape will be recorded by Vertex at fair value which approximates their historical values as of the acquisition date and combined with those of Vertex and its subsidiaries as of that date, with any excess purchase price being allocated to both identifiable intangible assets and goodwill (2) Pro Forma Adjustments: (a) As explained above, Vertex completed the acquisition of 100% of the assets and the assumption of 100% of the liabilities of Cape on January 11, 2005 which will be accounted for as a purchase. Accordingly, the accompanying unaudited pro forma condensed combined statements of operations assume that Cape had been acquired on October 1, 2003. Total consideration for the purchase was estimated at $2,198,700 comprised of cash paid to principals of Cape in the amount of $1,800,000 and fees and expenses estimated at $398,700. The accompanying unaudited pro forma condensed combined balance sheet reflects historical amounts for all of the assets and liabilities of Cape. Accordingly, pro forma adjustments have been made to record the acquisition of Cape as follows: Cash $ 208,765 Accounts Receivable 214,762 Inventories 35,486 Prepaid Expenses 95,627 Equipment, furniture and fixtures 34,108 Accrued Expenses (42,406) Deferred Revenue (214,778) Notes Payable (6,723) Accounts Payable (24,592) Other Intangibles 1,548,451 Goodwill 350,000 (b) Pro forma adjustments have been made to record interest expense on the 10% note payable which was issued in connection with the acquisition of Cape 43

VERTEX INTERACTIVE INC 8-K/A